IMF: 60 Years of Uncertainty

Our new index provides novel insights into an amorphous concept

Hites Ahir, Nicholas Bloom, and Davide Furceri

“If I had to identify a theme at the outset of the new decade it would be increasing uncertainty.”-Kristalina Georgieva, Managing Director of the IMF, Peterson Institute for International Economics, January 17, 2020

It is well-known that uncertainty reduces the willingness of firms to hire and invest and of consumers to spend. Yet it is a nebulous concept, because it reflects uncertainty in the minds of consumers, managers, and policymakers about future events (that may or may not happen). It is also a broad concept since it relates to macro phenomena like GDP growth and micro phenomena like the growth rate of firms—as well as other events like elections, wars, and climate change.

Given all these challenges, it is not surprising that researchers have relied on different methods to measure uncertainty. One approach is based on the volatility of key economic and financial variables (Leahy and Whited 1996; Bloom 2009; Ludvigson, Ma, and Ng, forthcoming). Another method is based on text-searching newspaper archives, for example, the Baker, Bloom and Davis (2016) Economic and Policy Uncertainty index. However, these approaches share an important limitation: they are typically limited to a set of mostly advanced economies, and for many of these countries the data are available only after the early 1990s.

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